High-Tech Firms Launch Campaign Against Chip Accord
Some powerful computer and electronics firms, angry over the soaring prices and shortages of memory chips, have begun a campaign against the U.S.-Japanese agreement that sets floor prices for semiconductors.
The protest marks the first formal break in the ranks of U.S. high-technology companies, many of which have strongly supported the 1986 agreement aimed at stopping Japanese firms from “dumping” chips in the U.S. market at below-cost prices and undercutting U.S. chip producers.
Companies that make computers, videocassette recorders, answering machines and other electronic products are now “desperate” for a stable and economical supply of basic memory chips, Richard Bernhardt, Atari Corp.’s coordinator of government affairs, said Thursday.
The semiconductor agreement, under which Japanese companies cannot charge less than “fair market value,” has helped create a marketplace that is “stifled and artificially inflated,” he said.
Bernhardt said that one popular semiconductor that cost $2 before the agreement was signed now costs between $6 and $8, with some companies that are facing shortages paying as much as $10.
Atari wants the accord scrapped and a less rigid one developed that protects the hundreds of firms using computer chips as well as the handful of U.S. chip producers, he said.
Atari and other leading electronics firms, including Tektronix Inc., Apple Computer, Tandem Computer and Compaq Computer, have been holding meetings in Washington to lay the foundation for a new high-technology group that would aggressively promote the interests of chip users. Some other companies that have not been involved directly in the meetings have monitored the discussions and are prepared to support the new organization.
The grumbling about rising chip prices, once confined mainly to industry circles, now seems headed for a highly visible forum in federal agencies and in Congress.
Tektronix fired the opening salvo of that campaign with a letter to Commerce Secretary William C. Verity, saying the price floor system “should be terminated, and free markets for semiconductors restored.”
The Commerce Department administers the agreement and any changes would require renegotiation between the department and Japanese officials.
Roger Majak, Tektronix’s Washington representative, said in the June 7 letter, a copy of which was obtained by The Times, that “prolonged government intervention in semiconductor markets and prices only encourages cartel-like behavior by both Japanese and U.S. producers.”
The agreement was designed to protect the dwindling American semiconductor industry by providing safeguards against dumping and by pressuring Japan to open its markets to U.S.-made products. It has been backed strongly by the Semiconductor Industry Assn. (SIA), whose members make the chips, and by the American Electronics Assn. (AEA), the huge high-technology trade association that includes both producers and users.
Under the agreement, Commerce Department specialists monitor Japanese firms and set a minimum “fair market value” that can be charged for their chips in the United States. The value is defined as the cost of production plus an 8% profit. The price system also applies to Japanese sales in other countries that import chips, so that the Japanese can not undercut U.S. competitors in these markets.
A shortage of chips has developed since the agreement, with some critics maintaining that Japanese firms cut back their production to drive prices to the “fair market value” and higher. Defenders of the pact say the shortages reflect fast-rising demand and the difficulties of switching production to new chips capable of handling more information. So far, “The voice of the users has been lost in the woods,” Bernhardt said. Their protest comes at a delicate time, because the supporters of the pact, the SIA and the AEA, are asking the government for its continuation with some modifications.
But Tektronix said in its letter that, “although Tektronix is an active member of AEA, that organization should not be considered to represent our views on this issue.”
AEA officials say they are not worried about a split within the industry. The likely formation of a new chip users’ group is “certainly their right,” said Ralph Thomson AEA senior vice president. “We are very well aware of their concerns. We are in a good dialogue with them.”
While it is “fine to have everyone speak from their own position,” said Thomson, an important goal must remain a strong domestic semiconductor industry. “We don’t want to be an overdependent hostage of foreign companies in the future,” he said.
The AEA is backing some changes in the fair market value system to allow for the introduction of new products that would not be subject to the controls.
For the chip users, there is also a desire to avoid a civil war in the industry. “We do not want to be antagonistic,” said Atari’s Bernhardt. “We want to encourage the Semiconductor Assn. and the American Electronics Assn. to work with us. But we want it known that the users of chips need to be protected as well as the producers. There are a lot of companies hurting.”
